What Are the Risks of Bank Car Loans?

Bank car loans are secured through a bank and used to finance vehicle purchases. Many car loans come straight through dealers or manufacturers. It is also common to finance a vehicle through an online lender or credit union. Bank loans typically offer key advantages like more  face-to-face loan negotiation and fairly good modification terms. However, seeking a car loan through a bank is not without its downsides. 

Higher Interest Rates

Banks often have higher interest rates than online lenders or even dealers. The added service and attention banks provide to loan customers partially creates the higher expense of bank financing. The cost of bank financing also increases because the bank often provides better loan terms for the borrower. This means the bank will allow borrowers to modify a contract more easily than other lenders, and the bank partially covers for the loss by raising interest rates. At times the rates will only be slightly higher, and other times you will notice a large difference. 

Loss of Asset

If you are securing your bank loan with the vehicle by placing the title on hold with the bank, you will lose the vehicle if you default. This is true of all secured loans, through the dealer and other lenders as well. Any collateral placed in order to secure the loan is liable to be seized, and at times may be seized without notice. You can protect yourself against this by setting aside an emergency fund to cover the payments even if you lose your income. You can also control spending in order to have more flexibility in a time of fiscal emergency. 

Low Value Assessment

Banks will extend financing based on the assessed value of the vehicle. While a dealer may set the ticket price high, the bank will look at the Kelly Blue Book or National Auto Dealers Association price to determine what the vehicle is worth. This will come into play to a greater extent with used cars. Even with new cars, though, a low value assessment can mean you come up short of the financing you need for the purchase. 

Lack of Dealer Incentives

Dealer loans often come with huge incentives. This is to entice you to buy the car and arrange financing through the dealer, which brings the dealer two streams of profit. These incentives range from low interest rates to discounts on the sticker price of the vehicle. When you approach a bank for financing instead, you will not be eligible for these dealer incentives. 

 


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